Business Transactions

Changing Jobs Impacted by Non-Competes and Confidentiality Agreements

As news reports continuously tell us, many people have recently lost their jobs and are now seeking replacement jobs.

Employees, consultants, and business partners of technology-related companies often sign non-disclosure and non-compete agreements. Hence, technology workers seeking new positions and technology employers seeking new hires should verify that the new position will not violate a non-compete or confidentiality agreement with a former employer.

The enforceability of non-competes and confidentiality agreements depends largely on state law. While some states such as California refuse to enforce most non-competes, other states do enforce non-compete agreements as long as the non-compete is reasonable in scope.

Non-disclosure and confidentiality agreements are more universally enforced. In an employer-employee non-disclosure agreement or confidentiality agreement, the employer agrees not to disclose nor use the trade secrets and confidential information of the employer. So for example, if you hire a software programmer who previously worked for a competitor, you need to be certain that your new programmer doesn’t use or incorporate any of your competitor’s trade secrets into your work environment and products.

California Supreme Court Confirms That Non-Compete Agreements Are Invalid

It’s nothing new to learn that California does not hold non-compete agreements in high regard. Previously, some advocated the view that non-compete agreements were valid in California as long as any prohibitions on practicing one’s profession, business or trade are reasonable.

For example, while it might be reasonable to prohibit a former employee from soliciting work within a radius of fifty miles of the office for a one-year period, it’s probably not reasonable to prohibit a former employee from soliciting work anywhere in the United States for a five-year period. This “reasonableness threshold” is the law in many other states.

The California Supreme Court slammed the door on that view by confirming that non-competition agreements are invalid in California even if their prohibitions are narrow. The only exceptions are non-competition agreements in the sale or dissolution of a corporation, partnership, or limited liability companies

Background to Court’s Decision
The opinion comes from the case of Edwards vs. Arthur Andersen. Raymond Edwards worked as a certified public accountant in the Los Angeles office of the accounting firm Arthur Andersen LLP. Andersen required Edwards to sign a non-competition agreement which restricted Edwards from doing any of the following after leaving the firm:

StartUp BizCast Interview: “When Business Partnerships Go Bad”

No one can do everything alone – thus the appeal of taking on a business partner or entering into a joint venture or strategic partnership with another company. In many ways, taking on a business partner is like taking on a spouse. Unfortunately, like some marriages, some business partnerships don’t work out and the parties eventually end up seeking a way out.

I recently talked with Steve Mullen of StartUp Bizcast about how business people can protect themselves and their businesses from relationships that go south. Our discussion included the three questions you should always ask before entering any business relationship.

Startup BizCast is targeted to busy professionals and prides itself on brevity.  Each episode is 15 minutes or less.  The weekly show offers small business advice, tips, and education ... all in less time than it takes to have a coffee break!

Listen to the 15-minute show here.

Steps in a Business Transaction. Part Six. Closing and Ancillary Documents.

This is Part Six in a series discussing steps in a business transaction.  In this part, I’ll discuss closing and ancillary documents.

For simple transactions, the “closing” simply consists of the parties signing the final version of the definitive agreement and making any payments due upon signing. For more complicated transactions, signing of a definitive agreement sets forth all the steps that are to occur prior to the closing. 

Steps in a Business Transaction. Part Five. Due Diligence Review.

This is Part Five in a series discussing steps in a business transaction. In this part, I’ll discuss the due diligence review. In short, a due diligence review is your chance to make sure that you are receiving in the transaction that for which you have bargained.

The scope of the review depends upon the transaction. If you are spending a few million dollars to purchase or invest in a company, you will do a more thorough due diligence review than if you are entering a licensing agreement that can be terminated with thirty days notice.

Steps in a Business Transaction. Part Two. Definitive or Long-Form Agreements.

This is Part Two in a series discussing steps in a business transaction. In Part One, I discussed term sheets, also sometimes referred to as letters of intent or deal memoranda. In this part, I’ll discuss preparation of the definitive agreement for your transaction.

Steps in a Business Transaction. Part One. Term Sheets.

In this blog series, I’ll discuss the steps in a business transaction. Of course, the steps in any particular transaction will depend on its objectives and complexity. Buying a company, licensing technology, financing your business, merging with another business, or partnering with another company for a project are all business transactions; however, each may not require all the steps I’ll discuss in this series.

Hence, my comments are general. Let’s start with term sheets.